The Supreme Court on Oct. 10 declined to hear a lawsuit seeking guidance on when an ERISA dispute should be tried in court or decided via arbitration.
The justices, who provided no comment, let stand a pro-participant ruling by the 10th U.S. Circuit Court of Appeals, Denver, in Argent Trust Co., Envision Management Holding et al. vs. Robert Harrison.
The Supreme Court's decision means the appeals court's February 2023 ruling remains in force rejecting a request for arbitration by a sponsor and a plan trustee.
Robert Harrison, a former Envision employee, sued in January 2021 challenging the fairness of an employee stock ownership plan stock sale by privately held Envision. He contended in a class-action complaint that the sale violated ERISA by harming participants financially.
Envision, its fiduciaries and Argent responded that the complaint is subject to arbitration because Envision's retirement plan contains an arbitration provision.
A U.S. District Court in Denver ruled for Harrison in March 2022, saying the arbitration agreement was unenforceable because it "disallows a litigant from seeking plan-wide remedies." The 10th U.S. Circuit Court of Appeals upheld the District Court decision, saying that the arbitration policy failed to protect the ERISA rights of Harrison and other participants.
Envision, Argent and Envision fiduciaries sought a Supreme Court review, saying the Denver appeals court ruling, and several other appeals courts' rulings, clash with another appeals court.
The 9th U.S. Circuit Court of Appeals, San Francisco, ruled in August 2019 that an employer could enforce arbitration in an ERISA complaint. The arbitration clause in the company's 401(k) plan document contains a class-action waiver, according to the ruling in Dorman et al. vs. The Charles Schwab Corp. et al.
However, appeals courts in Denver, Chicago and Philadelphia have ruled that arbitration agreements in retirement plan documents didn't protect all participants' rights under ERISA. Each pro-participant decision involved a class-action complaint.
The Supreme Court also has been asked to review the ruling by the Philadelphia appeals court in Wilmington Trust et al. vs. Marlow Henry. The court has scheduled a conference for Oct. 13. Four justices must support hearing the case. There is no timetable for the court to respond.
Marlow Henry is a former employee of privately held BSC Ventures Holdings and a participant in the company's ESOP. He sued in October 2019, seeking class-action status and saying the plan violated ERISA by overpaying for company stock. He sued Wilmington Trust, the plan's trustee, a BSC executive and a now-former BSC executive, who sold stock to the plan.
The defendants said the complaint required arbitration due to a plan provision that calls for a class-action waiver.
However, Maryellen Noreika, a U.S. District Court judge in Wilmington, Del., rejected the defendants' request to dismiss the complaint in September 2021.
"The facts at this stage of the proceedings plausibly support Henry's assertion that he did not have notice (about the arbitration rules) and therefore did not have the necessary intent to manifest assent," the judge wrote.
Given this information, "the class action waiver … also cannot be enforced at this time," Noreika wrote.
The defendants appealed, but the 3rd U.S. Circuit Court of Appeals, Philadelphia, upheld the lower court ruling on June 30 this year. The plan's class-action waiver "is an unenforceable prospective waiver of Henry's ERISA rights," a three-judge panel wrote. Because the waiver was an integral part of the arbitration provision, this provision is "void in its entirety."
The defendants petitioned the Supreme Court on Aug. 4.
